In 2017, year-on-year transaction volume grew 37% and total
capital composition by volume shifted to over 50% debt, signalling scale-up and
further maturation of the sector. In 2018, total transaction volumes grew
another 22% year-on-year, and the average equity investments doubled and debt
increased nearly 5.5x.

Commenting on the report, Benjamin Attia, Wood Mackenzie Power & Renewables Analyst and lead author, said: “Investments in the energy access space have accelerated rapidly in the last few years but total volumes still fall well short of the total estimated financing needed to reach universal electricity access globally by 2030. The pace and manner at which electricity is provided to almost 1 billion people who still do not have access to energy will have a dramatic impact on power demand, electricity generation, grid infrastructure investments and future carbon emissions reductions.

“This emerging sector has seen a steep uptick in investments
and partnerships from strategic groups within many of the oil and gas majors,
European utilities and IPPs, clean energy OEMs, and the technology sector
looking to capitalise on new opportunities in fast-growing emerging economies.
As the off-grid energy access sector begins to mature, strategic investors will
deeply shape the market’s trajectory and redefine the customer-centric utility
business model yet again by expanding service offerings beyond a basic
electricity connection. Ultimately, the energy access opportunity represents
the prospect of ‘owning’ the next billion customers, their evolving needs and
their data.”

Peter Weston, Energy 4 Impact Director of Programmes, said: “Strategic investors are playing an increasingly important role in the off-grid sector, attracted by the size and potential growth opportunities in the market. Most of the interest so far has been in pay-as-you-go solar home system companies, although there have also been some notable investments in mini-grids as well.

“Engie’s recent acquisition of Fenix is one of the first
successful exits in the sector and illustrates the market is becoming more
mature. However, there is a still a long way to go and it will be important for
donors and NGOs, such as Energy 4 Impact, to continue supporting the sector and
creating an enabling environment to encourage further investments.”

How is strategic investment fueling off-grid energy access?

Particularly for utility-minded strategic investors like
Engie, Shell, EDF, and Total, there is strong interest in evolving the utility
business model beyond electricity service provision. Leading distributed energy
service companies and their strategic partners are experimenting with ‘value-stacking’
add-on services like internet, water, productive appliances, financial products
and services, and other retail goods.

According to the report, 75% of all strategic activity in
the off-grid energy access sector is commercial in nature. Of that figure,
direct investments and M&A represent nearly 25%. Strategic investors and
their affiliates have made or been involved in over 110 direct investments in
the energy access sector – worth over $383 million in disclosed value.

Strategic investors have formed over 30 partnerships and
joint ventures with off-grid energy access companies. These allow a diverse
array of technical partners and the leveraging of internal resources, such as
R&D and marketing. Many are also motivated by strategic plans or targets to
operate in multiple markets by 2030.

Strategic investors have also participated in indirect fund
investments worth over US $461 million. Most of these investments by volume are
into funds managed or created within or alongside the corporate structure of the
investor, and allow the investor to learn from a broad set of vendors across
different product categories, geographies, and scales.

What’s in store for the energy access sector in 2019?

“An investment cliff could be looming in the short-term
future of the sector, particularly for pay-as-you-go solar home systems.
Capital concentration by company, technology, geography and business model,
paired with aggressive growth expectations from VCs and few successful exits to
date, leads to some outsized macro-level risks that may cause a dip in annual
investment in 2019.

“More broadly, in the face of the risk and reward of unbundling, the energy access sector in general and the SHS sector in particular may face a slight identity crisis in the near-term. Are they ultimately energy service providers or utilities? Are they ultimately consumer finance institutions? Retail product sales? Or all of the above?” added Attia.

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